China opens new window into bond market for foreigners

China yesterday widened access to its $US10 trillion ($13 trillion) bond market in a move analysts said would boost Beijing’s drive to internationalise the yuan and more deeply integrate its markets into the world financial system.

The new window for foreign investors was opened via Hong Kong, where “qualified investors” will be able to buy bonds in China — the world’s third-largest bond market after the US and Japan.

Qualified investors include central banks, sovereign wealth funds and other major financial institutions, according to the People’s Bank of China and the Hong Kong Monetary Authority, which jointly announced the move on Sunday.

Their statement said the “bond connect” platform between the Hong Kong and mainland Chinese markets went into “experimental operation” yesterday.

The move coincided with weekend celebrations for the 20th anniversary of Britain’s handover of Hong Kong to Beijing in 1997.

The PBoC said in a statement on Monday that the new platform would promote integration between Hong Kong and mainland China, “promote Hong Kong’s long-term prosperity and stability, and provide a more convenient investment channel for overseas investors”.

“It will also steadily push forward the opening up of China’s financial market,” it said. The link-up was launched in Hong Kong by the city’s new chief executive Carrie Lam, who hailed it as “another new chapter in the development of mutual capital markets access between the mainland and Hong Kong”.

Foreign investors already have ways to access Chinese bonds but currently hold less than 1.5 per cent of anything issued in China, according to estimates by Bloomberg.

China has been working to integrate with global markets, which allows access to increased foreign investment at a time of slowing domestic economic growth and helps internationalise its currency, which can increase a country’s global monetary clout.

The new platform mirrors previously established link-ups between the sharemarkets of Hong Kong and mainland China that now allow foreign and Chinese investors to buy stocks in the each other’s markets. The connect scheme currently only allows foreign investors to buy Chinese bonds — including government, corporate and central bank debt — but is expected to become two-way eventually.

Analysts, however, said the new platform was not expected to lead to a rush of foreign in­vestment because of factors ­including concern over the stability of the yuan, which has had a rocky year.